BoA: loan amendments potentially creates a bigger problem down the road
--- v-shape or w-shape recovery… or l-shape maybe? ---
In a recent research report. Bank of America Merrill Lynch says that recent loan amendments carried out to extend their maturity have been positive for credit investors, since without the amendment the borrowers could have defaulted. It says the average amended loan this year has increased its coupon from an original 220 basis points to 400bp, with an average amendment fee of 25bp and a Libor floor.
But the report argues that these amendments do not push out maturities far enough. It says most of the new maturities are concentrated in the 2012 to 2014 period, which already contains 85% of the maturities of outstanding loans. “In other words, extending these loans solves immediate liquidity problems today, but potentially creates a bigger problem down the road,” write the authors.
This does not apply to borrowers who have refinanced loans with new high yield bonds, since these bonds typically have maturities no earlier than 2016.
Recent amend-to-extends include Teck Resources, which extended a $3.5 billion bridge loan by two years to October 2011, and Jarden, which gained a three-year extension on its term loan from January 2012 on 18 August. Jarden’s amendment fee was increased from an initially proposed 5bp to 15bp. It also increased its interest rate from 175bp over Libor to 325bp over.
